Octave Intelligence (NASDAQ:OCTV) reported third-quarter revenue above its guidance range as software-as-a-service sales grew and recurring revenue reached the high end of its expectations. The company also slightly raised its full-year recurring revenue outlook and announced a share repurchase authorization of up to $200 million.
Revenue rose 6% on an organic basis to $415 million, while annual recurring revenue, or ARR, increased 7% organically to $1.171 billion. Adjusted operating income was $116 million, producing a 28% margin, up roughly one percentage point from a year earlier.
Chief Executive Officer Mattias Stenberg said results were broadly in line with expectations, and better in some areas. He said recurring revenue was a better indicator of the company’s health than total revenue as Octave shifts toward subscription-based models.
Recurring revenue and cash flow
Third-quarter recurring revenue, which includes subscription licenses, SaaS and maintenance, rose 5% on an organic constant-currency basis to $291 million. SaaS revenue climbed 17% to $91 million and now accounts for roughly a third of total ARR, according to management.
Monthly subscription license revenue grew 6% from a year earlier, while maintenance revenue of $125 million was slightly lower. Chief Financial Officer Ben Maslen said non-recurring revenue was also somewhat higher than expected, largely because of timing.
Adjusted net income was $0.32 per diluted share. Octave generated $95 million in operating cash flow and $65 million in free cash flow, a 16% margin. Maslen said the third quarter tends to be seasonally softer for cash generation.
The company ended the quarter with just under $300 million in cash and equivalents and $518 million in gross debt, leaving net debt of $222 million. Pro forma for the Cerebre acquisition, net debt would have been just under $350 million, Maslen said.
Outlook and public safety contracts
Octave reiterated its full-year organic constant-currency ARR growth forecast of 6% to 8% and its reported ARR range of $1.185 billion to $1.205 billion. Maslen said Cerebre’s contribution to reported ARR would be largely offset by foreign exchange headwinds.
The company slightly raised its full-year recurring revenue forecast to $1.145 billion to $1.15 billion, representing organic constant-currency growth of 5.5% to 6%. It narrowed its total revenue range to $1.64 billion to $1.66 billion, maintaining the $1.65 billion midpoint. It also continued to expect an adjusted operating margin of approximately 30% and a free cash flow margin of about 20%.
For the fourth quarter, Octave forecast total revenue of $440 million to $460 million, recurring revenue of $292 million to $297 million and an adjusted operating margin of 31% to 32%.
Maslen said the forecast implies slower total revenue growth than in the third quarter because Octave faces a comparison with a particularly strong quarter for perpetual licenses a year earlier. He said the operating environment had not changed significantly and that perpetual license revenue was expected to decline as the business shifts toward SaaS and subscriptions.
None of the large public safety transactions discussed on the prior earnings call closed in the third quarter, and the outlook assumes none are won in the fourth quarter. Stenberg said Octave expects to learn whether it has won most of the deals in the fourth quarter, but wins would not materially affect revenue in that period.
AI platform and Cerebre acquisition
Stenberg said Octave’s recently announced acquisition of Cerebre will strengthen the context layer of a platform the company aims to make generally available early next year. Cerebre converts legacy plant drawings into connected representations of equipment and material flows, making the information more accessible for artificial intelligence applications.
Cerebre’s technology is in production at more than 25 sites, Stenberg said. He described the company as small but fast-growing and said Octave plans to connect its technology to products including InConcert and other design, build and operate tools.
Octave is also testing consumption-based pricing for AI. Stenberg said AI capabilities are currently embedded in subscriptions and support retention, expansion and pricing. In response to an analyst’s question, he said the company is considering charging when agents access its system of record, although the strategy remains at an early stage.
Cross-selling and capital allocation
More than 10% of new ARR in the quarter came from cross-selling, Stenberg said. He told analysts that the early activity was split roughly evenly between sales within individual workflow environments and sales across them. He expects the platform planned for next year to help connect Octave’s products and improve cross-selling.
The board authorized repurchases of up to $200 million of Class B ordinary shares through the end of 2029. Maslen said the program is primarily intended to offset dilution from equity-based compensation, while allowing for additional opportunistic purchases. Octave is not obligated to use the full authorization.
Maslen said organic investment remains the company’s first capital allocation priority, followed by acquisitions that support its technology and financial objectives. Octave plans to provide its 2027 outlook alongside fourth-quarter and full-year results in February.
About Octave Intelligence (NASDAQ:OCTV)
Octave Intelligence plc provides various software solutions. Its solutions helps organizations to better understand and manage the environments in which they design, build, operate, and protect their assets, people, and critical infrastructure. Its platform connects data, events, and workflows across various environments and applies context-aware intelligence to help customers understand what is happening, what may happen next, and how actions in one area affect conditions in another. The company serves power generation and utilities, data centers and IT infrastructure operators, heavy construction and public works, industrial process industries, public safety and emergency response agencies, transportation networks and logistics operations, light process industries, and discrete manufacturing industries.
